WHETHER STAMP DUTY EXEMPTION IS APPLICABLE WHEN TRANSFER BETWEEN PARENT COMPANY AND SUBSIDIARY COMPANY

WHETHER STAMP DUTY EXEMPTION IS APPLICABLE WHEN TRANSFER BETWEEN PARENT COMPANY AND SUBSIDIARY COMPANY

STAMP DUTY EXEMPTION IN CASE OF TRANSFER BETWEEN PARENT COMPANY AND SUBSIDIARY COMPANY

The Central Government has exempted the payment of stamp duty on instrument evidencing transfer of property between companies limited by shares as defined in the Indian Companies Act, 1913, in a case:

 (i) where at least 90 per cent of the issued share capital of the transferee company is in the beneficial ownership of the transferor company, or

 (ii) where the transfer takes place between a parent company and a subsidiary company one of which  is the beneficial owner of not less than 90 per cent of the issued share capital of the other, or

 (iii) where the transfer takes place between two subsidiary companies each of which having not less than 90 per cent of the share capital is in the beneficial ownership of a common parent company :

 Provided that in each case a certificate is obtained by the parties from the officer appointed in this behalf by the local Government concerned that the conditions above prescribed are fulfilled.

However, stamp being a state subject, the above would only be applicable in those states where the State Government follows the above stated notification of the Central Government otherwise stamp duty would be applicable irrespective of the relations mentioned in the said notification.

STAMP DUTY IN CASE OF AMALGAMATION / MERGER

In an amalgamation/merger, business of the transferor-company, either whole or in part, is transferred to the transferee-company. In other it is a transaction facilitating transfer of the assets, properties, rights and liabilities of the transferor-company to transferee-company. Amalgamation or merger is a transaction under which transferor- company’s assets and liabilities are transferred to transferee-company.

 The decision to make such transfer is taken by shareholders of both the transferor and transferee-companies. The scheme of amalgamation has to be sanctioned by NCLT . Upon sanction by the NCLT and filing a copy of the court’s order the amalgamation/merger becomes effective. The transferor-company is dissolved.

Whether Stamp duty is payable on instruments.

Section 2(14) of the Stamp Act, 1899 defines an instrument as under :

“(14) Instrument includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded ;”

As per the above definition, a document creating or transferring a right is an instrument. If so, is an order by a court effectuating the transfer a document?

This question was answered in the affirmative by the Supreme Court in the case of Haji Sk. Subhan v. Madhorao where a decree of the court was held to be a document.

Again in the case of Ruby Sales & Services (P.) Ltd. v. State of Maharashtra , a consent decree was held, by the Supreme Court, to be an instrument liable to be stamped. In this case the decree was based on the agreement between the parties.

Order under section 394

An order under section 394 is also akin to a consent decree which has the effect of transferring the properties, rights and liabilities of the transferor-company to the transferee-company. In other words it conveys the title in the properties of the transferor-company to the transferee-company. Hence, it is an instrument liable to be stamped.

It is obvious that transfer of property takes place between the transferor and the transferee-companies in amalgamation or merger. The Stamp Act nowhere specifically mentions amalgamation or merger in any of the articles which contain entries of that are liable to be stamped.

SECTION 9 OF THE STAMP ACT

However, remission from the levy of duty has been granted to transfer of property by one company to another under section 9 of the Stamp Act. Relevant portion of the Central Government’s Notification No. 1 dated 16th January, 1937 to this effect reads as follows :

The Stamp Act has been adopted by almost all States in India except Maharashtra, Gujarat, Rajasthan, Karnataka and Kerala which have their own Acts. These State Acts are also modeled on the line of the Stamp Act, the only differentiating feature being the rates of duty which are different from State to State.

Supreme Court in Hindustan Lever & Anr. vs. State of Maharashtra & Anr. (2004)

The intended transfer is a voluntary act of the contracting parties. The transfer has all the trappings of a sale. The definition of 'conveyance' was an inclusive definition an d includes within its ambit an order of the High court under section 394 of the Act. It is therefore subject to payment of stamp duty

Bombay High Court in Li Taka Pharmaceuticals Ltd vs State of Maharashtra State of Maharashtra [1997]

An order u/s 394 is founded upon compromise between the two companies of transferring assets and liabilities and that order is an instrument as defined u/s 2(l) of Bombay Stamp Act

Calcutta High Court in Re: Gemini Silk Limited v. Gemini Overseas Ltd (2003)

An order sanctioning a scheme of reconstruction amalgamation under Section 394 is covered by the definition of the words 'conveyance' and 'instrument' under the Indian Stamp Act and therefore liable to stamp duty

WHETHER STAMP DUTY IS PAYABLE IN CASE OF COMPROMISE OR ARRANGEMENT

GVK Power & Infrastructure Ltd. and Others v. District Registrar of Assurances, Red Hills

Compromise or arrangement does not fall within article 20(d) of Schedule IA of the Stamp Act attracting stamp duty. In view of clear language employed in article 20(d) of Schedule of the Stamp Act and sub-section (1) of section 394, unlike amalgamation and merger, compromise or arrangement does not fall within that article attracting stamp duty. Therefore, order of the Registrar of Assurance directing petition company to pay requisite stamp duty is liable to be set aside being beyond his authority.